These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But investors can boost returns by picking market-beating companies to own shares in. To wit, the Perpetual Resources Limited (ASX:PEC) share price is 100% higher than it was a year ago, much better than the market return of around 0.6% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! The longer term returns have not been as good, with the stock price only 14% higher than it was three years ago.
We don't think Perpetual Resources's revenue of AU$232,732 is enough to establish significant demand. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Perpetual Resources will find or develop a valuable new mine before too long.
Companies that lack both meaningful revenue and profits are usually considered high risk. There is almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. While some such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). Of course, if you time it right, high risk investments like this can really pay off, as Perpetual Resources investors might know.
Perpetual Resources has plenty of cash in the bank, with cash in excess of all liabilities sitting at AU$824k, when it last reported (December 2018). That allows management to focus on growing the business, and not worry too much about raising capital. And with the share price up 100% in the last year, the market is focussed on that blue sky potential. The image below shows how Perpetual Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image. The image below shows how Perpetual Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, many of the best investors like to check if insiders have been buying shares. If they are buying a significant amount of shares, that's certainly a good thing. Luckily we are in a position to provide you with this free chart of insider buying (and selling).
A Different Perspective
It's good to see that Perpetual Resources has rewarded shareholders with a total shareholder return of 100% in the last twelve months. Notably the five-year annualised TSR loss of 4.4% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. Is Perpetual Resources cheap compared to other companies? These 3 valuation measures might help you decide.
Of course Perpetual Resources may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.